The share price of EMC fell sharply on Tuesday, dropping 7% despite beating analyst predictions for Q4 earnings. The market was reacting to news that virtualization vendor VMware, which is 86% owned by EMC and has hitherto been a star performer, is enduring serious competitive pressures. EMC's fourth-quarter profits were up by one third over Q4 2006, and revenues jumped almost 20% over the same period to $3.83bn. This growth came largely from the software side of the business, which grew 20%, although the company also saw strong growth from its storage business. Meanwhile EMC's professional services wing, a relatively minor division of the company, saw a stunning 27% increase in business.
EMC, which makes the Documentum Enterprise CMS, also released an initial financial forecast for 2008, showing an expected revenue growth of 13% to around $15bn.Yet such are the problems facing VMWare that even these bullish figures could do nothing to halt the share price slide. VMware shares took a beating on Tuesday, falling $28.10 to $54.90, representing a 34% slide. VMware shares are now priced at less than half its $125 high-water mark three months ago.
The trouble comes from disappointing Q4 figures, which has made analysts question their own growth predictions for the virtualization specialists. The stock has soared since the company's high-profile IPO last year, but a reassessment of the competitive climate in virtualization, along with poor earnings and continuing gloom over the U.S. economic outlook, has abruptly ended the Wall Street honeymoon.
What about it? Is it a good time to get stuck into EMC or VMware shares? Or should we duck and cover, and expect more Nasdaq mayhem in the days ahead? Have your say below.
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